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It is always surprising to sit down with clients who are approaching home buying for the first time (or sometimes even a move-up buyer) to find them harboring old truths, myths, and misconceptions about how to finance a real estate purchase. Dispelling these is our first step in creating an educated, well-prepared borrower.  

Here are the top mortgage myths, misinformation, and half-truths we often encounter:

-“You need a 20% down payment.” This myth just refuses to die. Years ago, this may have been true, but certainly not today. There are government-backed loans that allow for as little as 0% down. The average first-time buyer only puts about 6-7% down these days.

-“You need to find a home before you apply for a mortgage.” In fact, the opposite is the better strategy, if you wish to successfully compete in a tight market. Let’s get you preapproved first, with the property TBD, and you’ll know just how much home you can buy before you start shopping. A solid preapproval tells the seller that you can close the deal!

-“Having to pay Private Mortgage Insurance (PMI) is bad.” Oddly, PMI is viewed by some as a “penalty” for not putting 20% down, and may be why the “you need 20%” myth persists! In truth, PMI enables buyers – especially first timers — to get into the real estate market with less money down. History shows that even with PMI, getting in sooner usually beats staying out and watching prices soar from the sidelines as you try to save up for an ever-more-expensive home.

-“You need perfect credit.” Excellent credit does tend to win you a lower interest rate, but sterling credit is not mandatory. We often lend to borrowers with less-than-perfect credit.

-“You can’t get a mortgage if you have student loan debt.” Myth. Lenders consider your student loan debt as a part of all your current debt obligations when determining your debt-to-income ratio, and there may even be options to restructure some or all of that debt.

-“You need to be debt-free to get a mortgage.” This is never true, and pretty darn rare. Most clients have some form of other debt (credit card, car loans, student loans). Lenders consider your overall debt-to-income ratios when assessing your ability to make payments.

-“You should plan to buy a home in the Spring, because that’s when the most homes are put up for sale.” Spring was once the peak home buying season, but less so today. There are great deals to be found year-round.

-“The best deal is always a 30-year fixed mortgage.” Take off those blinders! It’s not always the best fit, so we help you compare dozens of programs, including ARMs, many of which have lower rates and – for your situation – may be more attractive from a cost standpoint.

-“You can’t get a mortgage if you’re self-employed.” Not true! There are many mortgage programs for self-employed borrowers, retirees, and other non-traditional borrowers.

Bring your questions and concerns to us. We have all the facts and can tell you the truth about exploring loan options. With our help, you will avoid mortgage myths and make the best decision for your financial future. Contact us for details on how you can purchase a home.

New 2024 loan limits for conforming mortgages have increased to $766,550 and $1,149,825 in high-cost areas like Hawaii. The Federal Housing Finance Agency (FHFA) recently announced these conforming loan limit amounts for residential mortgages to be acquired by Fannie Mae and Freddie Mac.

The 2024 limits increased significantly due to the continuing rise in home prices. The new $766,550 baseline loan limit for one-unit properties is a hike of $40,350 from $726,200 for 2023.

High-cost areas like Hawaii, Alaska, and locations in Virginia, have a new ceiling loan limit for one-unit properties of $1,149,825 versus $1,089,300 for 2023.

For Federal Housing Authority (FHA) loans, the new 2024 conforming loan limit is $498,257, a $60,000 increase over the 2023 baseline. FHA loans have lower down payment and credit score requirements than conventional loans and are popular for first-time buyers.

FHFA and FHA are required by federal law to adjust conforming loan limit values yearly to reflect changes in U.S. home prices. The conforming loan limit will rise by 5.56% in 2024 due to the FHFA House Price Index that determined the average U.S. home value increased by that amount between the third quarters of 2022 and 2023.

2024 conforming loan limits are available by clicking here.

2024 FHA conforming loan limits are available by clicking here.

Benefits of Higher Loan Limits

Home Buyers

Lower Monthly Payment and Overall Loan Costs Purchasing a home with a conforming loan versus a higher-cost jumbo loan can lower your borrowing costs. Conforming loans generally have better interest rates, lower costs, and flexible down payment, credit, and qualification guidelines.

Increased Purchasing Power Apply for a larger loan to buy a better home with a remodeled kitchen, extra bedroom, more space, or in a preferred location.

Homeowners 

Tap into more equity with a cash-out refinance Pay down debt, cover college tuition, or make home improvements.

Refinance a Jumbo Loan If you have a jumbo loan with a balance near a new loan limit in your area, you may benefit by refinancing to a conforming loan.

Ready to Discuss Your Mortgage Options?

If you’re considering a new home purchase or refinance, reach out to our seasoned mortgage advisors to discuss your loan options. Call 808-566-6611 or request a no-obligation consultation. Click here. 

Economy & Mortgages
Have Rates Peaked? What’s Ahead for Home Buyers? 

The Mortgage Bankers Association held its big annual convention recently, and shared its two-year outlook about the economy and its impact on interest rates. In summary, with inflation expected to fall from the current 3.8% to 2% by the end of next year, the MBA doesn’t expect the Fed to hike interest rates further this year.

“(The Fed is) already at a place where if they do nothing, and inflation holds or falls further from here, they’re going to be slowing the rate of growth, and the cumulative impact of the rate increases they’ve already made are not fully felt yet,” said Mike Fratantoni, MBA’s chief economist.

The MBA’s baseline forecast is for mortgage rates to end 2024 at 6.1% and reach 5.5% at the end of 2025. That would be welcome news pointing to possible refinance opportunities for borrowers taking out mortgages at today’s rates.

“As mortgage rates come down…borrowers will see less of a trade-off in moving,” said Joel Kan, the MBA’s Deputy Chief Economist. “I think that’s when you’re going to see more inventory free up,” Kan said. Low inventory has been sustaining home prices, even with the dramatic increase in interest rates. But don’t count on prices softening as inventory appears, though. If rates fall as expected, a rush of sidelined buyers may keep prices up. This is expected to be compounded by more first-time buyers appearing, with Millennials — the largest age cohort – already entering prime homeownership age.

All this forecasting aside, what do homebuyers and sellers face today?

With interest rates now slightly lower, but still near their highest point in more than 20 years, both buyers and sellers have to adjust their expectations. We help clients do this, by properly assessing and extending their financial horsepower through access to a wide range of innovative loan products.

Another important adjustment has to do with the type of property you may be considering. We’re seeing “move-in” properties selling quickly while those needing upgrades are taking longer to sell.

Properties that need some love are where savvy real estate buyers find opportunity!

A seller listing one of these in this tough market is more likely to be a motivated seller (versus an opportunistic one) and may be open to a lower offer. Renovation loans are key strategic tools in turning these unloved properties into beautiful investments.  

The bottom line is that opportunities exist throughout all market cycles. And it’s our mission to help you take advantage of those, quickly.

Contact us today if you or someone you know is thinking about a purchase, and we’ll put together a winning plan. 

Get the latest mortgage industry news. Click here.

Copyright © 2023 Myers Capital Hawaii 

Get the latest mortgage industry news. Click here.


Inside this edition:
– Economy & Mortgages: Have Rates Peaked? What’s Ahead for Home Buyers?
– Will Higher Rates Lead to Falling Home Prices? The Historical View.
– Adding Value with Accessory Dwelling Units (ADU)

– Why Now Could Actually End Up Looking Like a Good Time to Buy
– What’s Great Credit Worth? We do the math!

Economy & Mortgages: Have Rates Peaked? What’s Ahead for Home Buyers?

Will Higher Rates Lead to Falling Home Prices? The Historical View.

Is buying a home when rates are high a bad idea? Assuming you have to stretch that mortgage payment to get into a home, one thing you’d naturally be concerned with is the likelihood that home prices would fall right after you buy.

While this is of course a possibility, it’s statistically unlikely. As it turns out, home prices don’t correlate well with mortgage rates. In fact, home prices tend to ignore mortgage rates most of the time.

First, just because rates are high doesn’t mean home prices will tank. Look at the 1970’s (8.89% median interest rate), 1980’s (12.82% median interest rate), and 1990’s (7.88% median interest rate). According to Freddie Mac, year-over-year home prices only declined in the 1982-83 and 2007-09 periods.

When you look at it on a monthly basis, the picture becomes even more clear. It’s actually rare for mortgage rates to rise and home prices to decline at the same time – only happening in 6 out of 365 months. This is because rates tend to rise when Fed policy drives up rates in general, in response to inflation (which usually coincides with strong economic growth, low unemployment and rising wages — which drives up home prices).

The average homeowner keeps their home for around 13-14 years, a number that has steadily increased every year until recently, according to Redfin. When you consider that housing prices have fallen nationally in only 55 months in over 30 years, it’s likely that the average homeowner is coming out ahead, no matter when they buy.

Certainly, savvy homebuyers know they must reset their expectations about financing costs over the next several months. But the prospect of continued home value appreciation due to limited supply, as well as the prospect of a refinance later on, can make a purchase strategy attractive — even with higher rates. How much of that potential appreciation are you willing to forego while waiting for rates to fall considerably? Let’s chat!

Adding Value with Accessory Dwelling Units (ADU)

We’ve written recently about the growing trend for adding Accessory Dwelling Units (ADUs) to the properties of single-family residences. We can report that government encouragement of ADUs keeps expanding to match the trend. In October, the U.S. Department of Housing and Urban Development (HUD) announced a new policy allowing homeowners “to use a portion of the actual or prospective rental income from an [ADU] to be added to the borrower’s effective income for purposes of qualifying for an FHA-insured mortgage.”

The trend towards ADU construction for rental income, multi-generational families, work-from-home businesses, and other reasons means opportunity for many homeowners. If you have the space on your property to consider such a project, and have an interest in what it would take, set up a time with me to go through the ramifications in detail, so you can make a fully informed decision about it.

Why Now Could Actually End Up Looking Like a Good Time to Buy

With interest rates on some 30-year fixed rate mortgages hitting 8% this Fall, so many clients I speak with who are considering a home purchase (first time, as well as move-up) are naturally in shock when they consider the higher monthly payments that come with the territory today.

Many prospective buyers are ready to throw in the towel, and retire to the sidelines until the storm passes and the coast is clear. But before doing so, it’s important to try to see the big picture.

There are three big drivers in the market today which will probably continue to define the next few years in this industry.

Inventory: Housing supply is and will continue to be the driving force behind prices. Tight supply has sustained home prices even with a doubling of interest rates. Housing upply will not catch up to demand for home for the foreseeable future. When demand exceeds supply, prices tend to rise.

Demographics: The Millennial generation is 80 million strong, and now reaching the prime homebuying years. They’ve put off family formation longer than the previous generation, and are putting the most pressure on housing. That means first-time buyers will dominate the market. With limited inventory, this generational wave will continue to put upward pressure on prices.

Mortgage rates: As mentioned on page 1, they’re expected to fall back into the 6% range in the months ahead. It’s likely that sidelined buyers will re-enter the market as this occurs, which will put upward pressure on prices as more buyers bid on existing inventory. Right now, high rates have sidelined many prospective buyers to wait, which means less competition – especially in the case of unloved properties!

What it means…

While it’s impossible to predict the future perfectly, the trends above are powerful tidal forces acting on our industry. For these reasons, buyers entering the market now — as tough as it seems today – may end up looking like winners.

With a floor under prices, and less competition, there is more room for negotiation (especially on a home that needs an upgrade). Later on, if rates fall as expected, a possible refinance opportunity would exist, which would free up cash flow each month. To top it off, the many fence-sitters waiting for rates to fall would likely re-enter the market the minute the storm has passed and bid up prices with a new round of bidding wars against limited inventory. As one mortgage pro said, “You’ll have pandemonium.”

So, even with high interest rates, buying now could end up looking like the better move, down the road. Rather than dither, call me, and let’s talk through your goals. We’ll find the loan options that will fit into your budget and get you house hunting while the hunting is good!

What’s Great Credit Worth? (Answer: A lot.) We do the math!

Now more than ever, with rates at elevated levels, a great credit score is worth the effort. We always say that we like to “do the math”. Well, here it is. While your financial profile and loan program will determine your rate, the general rule is that a better credit score helps you win a lower mortgage rate. The table below is based on a $300,000 mortgage, using national average mortgage rates from last month (*source: myFICO, October 2023). You can’t help but see a significant difference in monthly payment and lifetime interest costs!

Rates as of 11/10/23 and can change without notice. Rates mentioned in articles are for illustrative purposes only.  All mortgage products, rates, terms and conditions are subject to credit and underwriting approval. Your actual payment obligation will be greater. Does not include additional costs such as taxes and insurance premiums. This is not a commitment to lend or extend credit. Additional requirements and restrictions apply. Company NMLS 1662480. Consult with your tax, legal and accounting advisors before engaging in any transaction.

Like brushing and flossing, taking care of your credit score pays off in the long run! There are many ways to check your credit score for free, and you can get one free credit report from each of the major reporting companies (Experian, TransUnion, and Equifax) annually. Want more information on how to boost your score? Contact us, and we’ll provide guidance anytime!

Copyright © 2023 Myers Capital Hawaii  

Get the latest mortgage industry news. Click here.

– Using a 401(k) loan for a Down Payment – Is this a good idea?   

Copyright © 2023 Myers Capital Hawaii  

Economy & Mortgages
A Strange Disconnect – Why are Home Prices still Up when Rates are this High?

Follow the industry buzz, and you’ll get a range of viewpoints — from “The housing market is cooling off as rising interest rates and inflation weigh on affordability” (NAR), to “Home prices are expected to continue to rise in 2023, but at a slower pace…” (CoreLogic), to “The bidding wars are starting to cool off…” (Redfin).  

While high mortgage rates would normally stomp all over home prices, that\s not happening. The reason? The number of homes for sale in June 2023 was still 22.2% below the same month in 2021. It’s still a seller\s market. That kind of environment makes it a good bet that home prices should continue to rise, albeit slowly.

What drives the lack of inventory?
We’ve talked in previous issues about homeowners who are reluctant to move and let go of a 3% mortgage, and/or aging in place longer. Now, think back two years: The housing market sizzled in 2021 and 2022, with prices soaring.

Many homeowners rushed to sell their homes, cashing out much earlier than they might otherwise have. This front-loading of sales — pulling forward sales that would normally have happened later – has exacerbated the ongoing lack of inventory, putting us in an even deeper hole.

What goes up…
The Fed, as everyone expected, raised its benchmark Fed Funds rate for the 11th time in this 16-month effort, by a widely expected 0.25% to a target range of 5.25% to 5.50%, the highest level in 22 years. Fed Chair Jerome Powell indicated that that higher borrowing costs are working to slow inflation, down from over 9% a year ago to about 3% now (the Fed’s target is 2%), and that the Fed believes we will avoid a recession.

On the flip side, credit card debt is soaring, which may well result in some economic reckoning ahead for many. For now, most experts hope that the Fed will let the cumulative effect of all these increases take hold and stand down for the foreseeable future.

What’s ahead for mortgage rates?
Assuming that the Fed is done (we’ll see), mortgage rates may begin to trend downward towards year end — good news for purchasers with rates in the low 7% range. The old adage “marry the house and date the rate” should apply, and we expect these buyers to refinance when that occurs.

So should you or your family members wait to buy? The long-term wealth-producing effect of homeownership is usually strongest when started early. We can help you to pounce when your ideal property hits the market, with a solid loan pre-approval that will maximize your competitiveness.

Contact us today to get the conversation started!

Get the latest mortgage industry news. Click here.

Copyright © 2023 Myers Capital Hawaii  

Get the latest mortgage industry news. Click here.
 
 – Economy & Mortgages: Is The Fed Nearly Done? With Rates Expected to Soften Buyers See Opportunities Ahead
 
 – A Deeper Look: Are High-Credit Borrowers Subsidizing Low-Credit Borrowers?
 
 – The USDA Loan: What It’s For and How it Works
 
 – Dreaming of a Second Home? What to Know Now That The Pandemic Rush is Over  
 
 – Low Down Payment Loans Increasingly Popular

Copyright © 2023 Myers Capital Hawaii  

You have inherited a property and you and other heirs are deciding what to do with the home. While it’s good to receive a large asset, inheriting property can bring numerous legal, financial, and familial challenges in addition to dealing with the loss of a loved one.

You may need to work with legal and financial professionals to navigate probate procedures before your share of the asset can be claimed. Probate can take anywhere from months to years to settle the estate.  

Here are three main options when inheriting property:
1 – Live in it as a primary residence
2 – Rent it out for passive Income
3 – Sell it for a windfall

Whether you plan to live in, rent or sell the home, it’s important to not delay as holding expenses like the current mortgage, taxes, and insurance will accumulate and need to be paid to keep the property from going into foreclosure.

How to Finance an Inherited Property 
Here are ways to finance the home that could include funds to buy out your heirs or pay liens and debts associated with the property: 

We Are Here to Help 
We are experts in helping clients who have inherited property to come up with solutions that best fit their situation and goals. Contact us for a no-obligation consultation.

*The information to be provided is for informational purposes only. Myers Capital does not provide tax, legal or accounting advice. Borrowers should consult with their own tax, legal and accounting advisors before engaging in any transaction.

Get the latest mortgage industry news. Click here.

– It’s Home Equity Revival  

Copyright © 2023 Myers Capital Hawaii   

With the rise in rates, the power is shifting to buyers in real estate. This could present buying opportunities for qualified borrowers. To get the most attractive financing, though, you will need to keep your financial profile in tip-top shape. Though several factors play a role, high credit scores and low DTIs (debt-to-income ratios) typically dominate the calculation lenders use in determining your rate.

Take Great Care of Your Credit Score 
• Always pay your bills on time. People who never miss a payment date, even making minimum payments, earn higher credit scores.
• Pay down or pay off credit card balances and personal loans. Low utilization of your available credit is a plus with credit agencies. If you use a credit card for all your expenses, and if your utilzation is high relative to your credit limits, switching some spending to cash can help. 
• Keep older credit accounts open, and don’t keep switching creditors. A long track record of responsible use of credit has great value. If you want to cancel some credit lines, cancel the newer ones first.

Improve Your Debt-to-Income Ratio (DTI)
In getting a mortgage, a lender considers the ratio of all of your current monthly debt obligations (including your new mortgage payment) versus your income. The (rough) rule of thumb is to have your DTI at or below 43% of income. Lower is better, so:
• Pay down outstanding credit card balances.
• Avoid making major purchases with credit for several months before applying for a home loan.
• Consider paying down a car loan. Car loans often carry lower interest rates than other debt so paying down other debt first makes more sense.
• Restructure Federal student loans, if possible. Consolidation of multiple federal loans into one federal loan may allow you to lower your payments by extending the loan term (though your interest costs will increase). This can include income-driven repayment plans that may significantly reduce your monthly payment. You can also combine private and federal loans into one private loan which may save money and reduce those payments.

“Rapid Rescore”
During the loan process, I also have the option of helping you with a “rapid rescore” with the credit scoring agencies to accelerate the improvement of your credit score. Note: Rapid rescoring may only be done with the help of a mortgage professional, not “credit repair” companies.

Also, rapid rescoring is not a means of removing negative information such as late payments or bankruptcies. Contact us for guidance on how, and in what order, to pursue these strategies.

Let’s Start Today
These updates and improvements can take several weeks to impact your credit and DTI’s, but the efforts are well worth it, because they directly affect the cost of home financing. It’s never too early to start, so if buying or investing in real estate is in your future (even a long time from now), contact us for further details.

Copyright © 2022 Myers Capital Hawaii